Entry costs vary dramatically across countries. To assess their impact we construct a model with endogenous entry and operation decisions by …rms and calibrate it to match the U.S. distribution of …firms by size. Higher entry costs lead to greater misallocation of productive factors and lower...

We build a dynamic political economy model with a two-class society: workers and the elite. A key feature of the model is that the formation of the elite, the rate of innovation, taxes and public spending are endogenous. Differently from most of the literature on institutions and growth which...

We consider an economy, in which the elite controls the means of production. The private incentives of each elite member contradict the interests of the elite as a whole. While each member of the elite would benefit from engaging into new productive activities, the byproduct of such activities...

This paper explores the implications of the political economy model of Battaglini and Coate (2008) [8] for the behavior of fiscal policy over the business cycle. The model predicts that fiscal policy is counter-cyclical with debt increasing in recessions and decreasing in booms. Public spending...

The authors investigate the relationship between the quality of institutions and output volatility. Using instrumental variable regressions, they address whether higher entry barriers and lower property rights protection lead to higher volatility. They find that a 1-standard-deviation increase...